Bill Text: CA SB1451 | 2011-2012 | Regular Session | Amended
Bill Title: Insurance.
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Engrossed - Dead) 2012-06-27 - From committee with author's amendments. Read second time and amended. Re-referred to Com. on INS. [SB1451 Detail]
Download: California-2011-SB1451-Amended.html
BILL NUMBER: SB 1451 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY JUNE 27, 2012
AMENDED IN SENATE MAY 10, 2012
AMENDED IN SENATE MAY 2, 2012
INTRODUCED BY Senator Calderon
FEBRUARY 24, 2012
An act to amend Sections 11162 and 11163 of, and
to add Section 11163.5 10271.2
to , the Insurance Code, relating to
insurance.
LEGISLATIVE COUNSEL'S DIGEST
SB 1451, as amended, Calderon. Insurance: fraternal
benefit societies: loans. Insurance.
Existing law governs the business of insurance, and defines
various types of insurance for these purposes, including life
insurance and disability insurance. Existing law generally makes the
requirements imposed on disability insurance contracts inapplicable
to life insurance, endowment, and annuity contracts, or supplemental
contracts thereto, that provide additional benefits in case of death
or dismemberment or loss of sight by accident, operate to safeguard
contracts against lapse, or give a special surrender value, a special
benefit, or an annuity if the insured or annuitant becomes totally
or permanently disabled.
This bill would specify that the term "special benefit" for
purposes of those provisions includes an accelerated death benefit if
some of all of the death benefit of a life insurance contract is
paid to the insured upon the occurrence of certain qualifying events,
including if the insured requires continuous confinement in an
eligible institution.
Existing law requires supplemental contracts or, if a supplemental
contract is an integral part of a life insurance contract, life
insurance contracts to be submitted for approval by the Insurance
Commissioner before the contracts are delivered or issued for
delivery in this state.
This bill would require a life insurance contract or supplemental
contract that includes an accelerated death benefit that is submitted
for approval by the Insurance Commissioner to be submitted for
approval with specified additional information, including a statement
of the types of policy forms with which the benefit will be offered.
Existing law governs the organization of fraternal benefit
societies, which, among other characteristics, are nonprofit,
incorporated societies, orders, or supreme lodges, without capital
stock, conducted solely for the benefit of members and their
beneficiaries, have a representative form of government, and make
provision for the payment of benefits. Existing law authorizes these
entities to provide all forms of life and disability insurance,
except as specified. Existing law makes it a felony for any officer,
director, agent, or employee of any fraternal benefit society to
borrow funds of the society, to become endorser or surety for loans
by the society to others, or to be obligor for moneys borrowed or
loaned by the society. Existing law also makes it a felony for an
officer, trustee, agent, or employee of a fraternal benefit society
to ask, receive, or consent or agree to receive anything of value for
procuring or endeavoring to procure a loan to any person from the
trust funds of, or funds belonging to, a fraternal benefit society.
This bill would except from these prohibitions, loans made by a
fraternal benefit society to a member of the society under certain
conditions and loans made to a life licensee, as defined, appointed
by the fraternal benefit society, under specified conditions,
including that the loan is not made to an officer or director of the
society, that the loan is secured and contains a repayment provision
in accordance with the industry custom and practice of life insurers
for loans to life licensees, and that no officer, director, agent, or
employee of the society, other than the life licensee, receives
consideration due to the making of the loan. The bill would provide
that the loan is to enable the licensee to, among other things, lease
an office and pay for other expenses related to selling the society'
s certificates. The bill would also specify that the loan may be
based on a good faith estimate of expenses or reimbursements, but may
not cover expenses incurred or estimated to be incurred after 180
days from the date the licensee is appointed, as specified.
Vote: majority. Appropriation: no. Fiscal committee: no
yes . State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 10271.2 is added to the
Insurance Code , to read:
10271.2. (a) The term "special benefit," as used in this chapter,
includes an accelerated death benefit if some or all of the death
benefit of a life insurance contract is paid to the insured upon the
occurrence of any of the following qualifying events:
(1) The insured develops a medical condition that is reasonably
expected to result in a drastically limited life span, as defined in
the contract or supplemental contract, but not defined in a way to
require a life span of less than six months but not providing
benefits for a life span of more than 24 months.
(2) The insured requires continuous confinement in an eligible
institution, as defined in the contract or supplemental contract, and
is expected to remain there for the rest of his or her life.
(3) The insured requires extraordinary medical intervention, such
as a major organ transplant or continuous artificial life support,
without which he or she would die.
(4) The insured has a medical condition that, in the absence of
extensive or extraordinary medical treatment, would result in a
drastically reduced life span.
(5) The insured has a chronic illness, defined in the contract or
supplemental contract as a permanent inability to perform, without
substantial assistance from another individual, more than three out
of six activities of daily living, or permanent severe cognitive
impairment or similar forms of dementia.
(b) A life insurance contract or supplemental contract submitted
for approval of the commissioner pursuant to Section 10292 shall be
submitted with the following additional information if the contract
includes an accelerated death benefit:
(1) A statement of the types of policy forms with which this
benefit will be offered, any underwriting restrictions involving face
amount or age, and whether the benefit is intended for use with new
issues or in force business.
(2) A specimen issue of the statement regarding the effect of
accelerated death benefit payment on other benefit provisions, to be
provided to the owner prior to, or concurrent with, the election of
the accelerated death benefit option, and an explanation of how and
when the statement will be provided. The statement shall demonstrate
the effect of the acceleration of the death benefit on the policy
cash value, death benefit, premium, cost of insurance charges, and
loans and liens, as applicable. The statement shall be based only on
guaranteed values. The statement shall also include a disclosure that
receipt of an accelerated death benefit may affect eligibility for
Medicaid or other governmental benefits or entitlements and may have
tax consequences.
(3) An actuarial memorandum prepared, dated, and signed by a
member of the American Academy of Actuaries that includes the
following information:
(A) A description of the accelerated death benefit, including the
effects of payment of the accelerated death benefit on all policy
benefits, premium payments, cost of insurance rates, and values,
including any outstanding loan, if applicable, for all types of forms
with which the accelerated death benefit will be used.
(B) A description of, and justification for, expense charges
associated with the accelerated death benefit and the maximum expense
charges.
(C) A description of the interest rate or interest rate
methodology used in any present value calculation or in accruing
interest on the amount of the accelerated death benefit, which shall
not exceed the greater of: (i) The current yield on 90-day treasury
bills, or (ii) A variable rate determined in accordance with the
National Association of Insurance Commissioners (NAIC) Model Policy
Loan Interest Rate Bill No. 590.
(D) A description of the mortality basis and methodology,
including the period of time applicable to any mortality discount,
used in any present value calculation of the accelerated death
benefit.
(E) A description of the mortality and morbidity basis and
methodology used in the determination of any separate premium or
costs of insurance for the accelerated death benefit.
(F) The formula used to determine the accelerated death benefit,
including any limitations on the amount of the benefit, and the
formula used to determine the postacceleration premium.
(G) A sample calculation of the accelerated death benefit. If the
policy contains a loan provision, the example shall assume that there
is an outstanding loan at date of acceleration. All policy benefits,
premium payments, cost of insurance charges and values, including
the outstanding loan, if applicable, immediately before and
immediately after acceleration shall be shown in the example.
(H) If an accelerated death benefit may be paid in installments,
the basis used in the calculation of the minimum periodic payment for
the payment period and a sample calculation of a minimum periodic
payment, and the basis used and a sample calculation of the lump sum
payable if the insured dies before all periodic payments for the
payment period are made.
(I) For any accelerated death benefit of the type other than a
terminal illness, a certification that the value and premium of the
accelerated death benefit is incidental to the life coverage.
SECTION 1. Section 11162 of the Insurance Code
is amended to read:
11162. Except as provided in Section 11163.5, it is a felony,
punishable by imprisonment pursuant to subdivision (h) of Section
1170 of the Penal Code, for any officer, director, agent or employee
of any fraternal benefit society to, directly or indirectly, for
himself or as partner or agent of others:
(a) Borrow any of the funds of such society.
(b) Become endorser or surety for loans by the society to others.
(c) In any manner be obligor for moneys borrowed or loaned by such
society.
SEC. 2. Section 11163 of the Insurance Code is
amended to read:
11163. Except as provided in Section 11163.5, it is a felony,
punishable by imprisonment pursuant to subdivision (h) of Section
1170 of the Penal Code, for any officer, trustee, agent or employee
of a fraternal benefit society to ask, receive, or consent or agree
to receive anything of value for procuring or endeavoring to procure
a loan to any person from the trust funds of, or funds belonging to,
a fraternal benefit society.
SEC. 3. Section 11163.5 is added to the
Insurance Code, to read:
11163.5. Sections 11162 and 11163 shall not prohibit the
following:
(a) A loan by a fraternal benefit society to a member made under
the provisions of a certificate form available to members of the
society in the ordinary course of the society's business.
(b) A loan to a life licensee, as defined in Section 1626,
appointed by the fraternal benefit society pursuant to Section 1704,
if all of the following apply:
(1) The loan is not made, directly or indirectly, to an officer or
director of the society.
(2) The loan is secured and contains a repayment provision in
accordance with the industry custom and practice of life insurers for
loans to life licensees.
(3) No officer, director, agent, or employee of the society, other
than the life licensee, receives any consideration due to the making
of the loan.
(4) The loan is to enable the licensee to lease an office, lease
or purchase office equipment or supplies, or pay for other expenses
related to selling the society's certificates. The amount of the loan
may be based on a good faith estimate of expenses, reimbursement of
expenses, or a combination of these methods. The loan may not cover
expenses incurred or estimated to be incurred after 180 days from the
date the licensee is appointed pursuant to Section 1704.
